In Digital Realty Trust, Inc. v. Somers, the Supreme Court held that the anti-retaliation provision of Dodd-Frank does not extend to an individual who has not reported a company’s violation of securities laws to the SEC prior to termination.
Paul Somers, a former Vice President at Digital Realty Trust, Inc. (Digital Realty), was terminated shortly after he reported suspected securities-law violations by the company to senior management. Somers did not report his concerns to the Securities and Exchange Commission (SEC) before he was terminated. Somers then sued Digital Realty, alleging violations of state and federal laws including Section 21F of the Exchange Act, which includes the anti-retaliation provisions created by Dodd-Frank.
In finding that the anti-retaliation provision of Dodd-Frank does not cover individuals who have not reported securities violations to the SEC, the Court focused on the fact that the Dodd-Frank Act explicitly defines whistleblowers as individuals who provide pertinent information “to the Commission.” This definition goes hand in hand with the “core objective” of Dodd-Frank’s whistleblower program, which serves “to motivate people who know of securities law violations to tell the SEC.”
The Court also noted that because the statute was unambiguous in its definition of a whistleblower, the Court did not have to decide whether to defer to the SEC’s interpretation that Dodd-Frank protection extends to employees who have reported internally. In so finding, the Court quoted Chevron, which states that when “Congress has directly spoken to the precise question at issue,” the Court does not defer to the contrary view advanced by the SEC.
Because employees are not protected under Dodd-Frank’s anti-retaliation provisions unless and until they report their concerns to the Commission, the Court’s decision will likely cause more employees to report potential corporate misconduct directly to the SEC as opposed to through the company’s internal compliance systems. We will watch as it plays out and follow up with any important guidance in the future.